The Housing Market Ball and Chain
Welcome to the Skeptical Investor blog right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.
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Today’s Interest Rate: 6.90%
(☝️.08% from this time last week, 30-yr mortgage)-------------
The Weekly 3 in News:
- - New details of the potential new tax legislation and economic plans are out. Check out this video from Treasury Secretary Scott Bessent (CNBC).
- - Thinking of moving to or within Nashville? Consider Donnelson. An affordable area near downtown. Check out this oldie but goodie video here. We have clients loving investing in the Donnelson area of Nashville (XPLR).
- - Where are single-family homes being built? Houston, Dallas, Atlanta and Charlotte round out the top 5 (ResiClub).
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Today, we’re talkin’ the lazy bones existing home market, what is a shadow Fed President, and is the US economy actually shrinking???
Let’s get into it.
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Has GDP Gone Negative? Maybe not.
For a moment, pundits, media personalities, political folks, and most economists (good job to the few) went a bit off the rails last week when a negative GDP print hit the shelves, showing Real GDP down -.3% last quarter. Well, they are still
Ah recession! See, I told you! Doom! Ahhhhh! Yay I was right!
This got folks majorly tilted and elated. Depending on your politics, I must assume (remember, a recession is roughly defined as two consecutive quarters of negative GDP growth, ie an economy in contraction).
BUT….
The underlying GDP numbers were extreme, skewed by an enormous increase in imports and inventories. In general, GDP accounting technicals count imports negatively to GDP and exports as positive.
However, Core GDP, real final sales to private domestic purchasers (GDP less inventory change, net exports, and government spending), actually grew 3%.
Many analysts I like to track think this is a better measure of underlying domestic demand, when we have outlier data.
Obama’s former economic chair Jason Furman agreed, saying, “Final Sales to Private Domestic Purchasers is usually a better predictor of future GDP growth….My preferred measure of "core GDP" a better signal, up at a 3.0% annual rate.” He put up this BEA chart on X.
The only caveat is that equipment spending (driven by high-tech equipment) surged 22.5% in Q1, likely companies importing a tremendous amount to front-run potential tariffs, so even the 3% growth may be a bit overstated, as it pulled forward some future demand. In a few weeks, we will see a revised GDP number once more data comes in. Let’s see how the -.3% number holds up. Bookmark this.
I bet you a Chipotle burrito it’s revised positive. Seriously. The first 25 folks, you tell me if I’m wrong and I’ll UberEats you a burrito! (no guac tho, I’m still licking my wounds from my UFC bets this last week. What happened Bo Nickel?!You were my lock of the week!)
But, I digress…
Atlanta Fed is All Over the Place
The Atlanta Fed sees growth in Q2, estimating 2.4% GDP to to upside.
Wait! Sorry, my mistake. Their estimate was 2.4%, on April 30th…
…But a couple days later, they just revised their estimate to 1.1% for Q2.
This, after last quarter when they shocked the market and predicted Q1 GDP would be…checks notes…. -2.7%?!
What are they doing over there? What a shit show @AtlantaFed. Stop the politics, just give us the data.
Shadow Federal Reserve Chair Talk
Speaking of politics, without getting political here, the President has threatened plenty of times that he would fire or remove Jerome Powell as Chair of the Federal Reserve. But in the last few datys he has walked those comments back, saying he has no plans to do so (*cough*, thank you Treasury Secretary Scott Bessent for your sage advice).
But could the President influence or even control monetary policy, without replacing Powell?
Imagine the President, eager to replace Federal Reserve Chair Jerome Powell as his term nears its end, selects someone now, roughly a year ahead of Powell’s term ending. This person, with encouragement from the President, takes to the media with a clear and calculated message: cut the Fed funds rate and lower mortgage rates. Their consistent, forceful campaign signals a shift in monetary policy in just 12 months time, moving [bond] markets and in essence doing the Fed’s work for them. er,,,or for the President, depending on your perspective.
Who may he pick?
Kevin Warsh is the most likely candidate. Warsh, a former Federal Reserve Governor, shares views on monetary policy—marked by opposition toward quantitative easing/printing money, advocacy for a more rules-based approach and challenging the Fed’s traditional strategies. Warsh was also an advisor to Trump during the transition. It could also be: Treasury Secretary Scott Bessent (I hope not, we need him to stay put!) or Kevin Hassett, a former economic advisor.
This shadow action would likely bring both volatility to markets and drive down mortgage rates.
Fortunately, we are seeing more activity in real estate transactions, albeit from a low base.
A Healthy-er Housing Market
Market activity is up in 2025, painting a positive picture for the spring/early summer market.
Pending home sales rose 6.1% MoM in March, with the South far ahead of other markets (it does get warmer there first, however).
And the good news, there are more choices for homebuyers and investors.
Real Estate Inventory is Up, and that is a Great Thing
Housing inventory on the market is creeping up, still not nearly back to pre-2019 but it’s the best number we’ve seen in 5 years, finally just passing 2020 housing inventory levels.
Total housing inventory registered at the end of March was 1.33 million units, up 8.1% from February and 19.8% YoY (1.11 million, NAR).
Let’s look at inventory levels at the city level, and as compared to years previous.
Up in some markets, but still down to flat in most.
This is good news and progress towards a healthier, normal market, but still not normal yet. A 2-2.5 million market inventory is the historical norm, so if we can approach 2 million, the market will feel normal rather than tight. Affordability would begin to relax as well, as choice suppresses home price appreciation (likely not price decline, but price disinflation, of course, this is market-specific). Inventory still has a ways to go for most major cities, but at least it is out of its meek, gothic phase.
Anecdote: My Skeptical Investor community is not seeing inventory come through to investors as deal flow. I’m just not seeing a plethora of value-add properties available. Especially in growing C+ to B + class neighborhoods. Neither single-family nor small/medium-sized multifamily properties. There is still plentiful demand, circling deals from a few. When rates drop to the 6s and 5s, investors are going to descend like Attila and his Huns on the existing home residential real estate market inventory. I am front-funning that demand in my business.
One major reason: existing home inventory.
Activity is still Suppressed by Interest Rates
Existing home sales hit recessionary levels in 2022, ie, near what we saw during the Great Financial Crisis in 2008. It’s been 3 years, and we are still digging out of that hole.
Are Existing Home Sales Rebounding?
According to the National Association of Realtors, “March 2025 brought 4.02 million in sales, a median sales price of $403,700, and 4 months of inventory. The median sales price is down 2.4% year-over-year, and inventory was up 0.8 months from March 2024.”
So are existing home sales up from here?
Meh. The reality is, probably not. Chart on:
Existing-home sales fell 5.9% month-over-month to a seasonally adjusted rate of 4.02 million in March 2025. Year-over-year, sales drew back 2.4%.
Existing homes are still the laggard, dragging interest rates like a ball and chain. Folks just can’t come to terms with a higher rate and likely monthly payment if they sell. Others simply can't afford it.
This is pushing up the average age of homebuyers. Those who can still afford it.
Housing handcuffs still exist.
21st Consecutive Months of YoY Home Price Increases.
If you follow real estate, you probably have heard plenty of folks decrying high home prices and calling for/predicting a real estate crash.
Well, if you are waiting for home prices to come down meaningfully…
…it’s going to be a long wait.
Here is my favorite chart ever made. Credit to @HousingWire and @LoganMohtashami for reminding us.
Home prices rarely decrease in any meaningful way. Chart on:
Since we were keeping track. Home prices went down YoY just a few times. And really it’s just once, and that was systemic to housing (the Great Financial Crisis).
Real estate is not the stock market, stocks play a whole different game of up/down volatility.
Case in point: Just last week, the stock market nearly touched Bear Market territory, down ~18% since February highs.
Real estate? It is down 1.72% from its highs (ResiClub).
And remember, this is a national average, as they say, “all real estate is local.” Most all major markets are positive, with only a handful of major markets down. And those markets are still way up since 2020, they just grew too fast and corrected down. Austin is often the poster child for this. But I say lay off Austin! It’s still very much a high-demand, growth market. Plenty of folks moving there and jobs are plentiful, especially in all that fun tech and aerospace stuff they’ve got going on. But when the entire state of California moves there all at once, well, it’s going to experience some volatility to the upside. Remember, volatility means price increases and decreases and increases and decreases…Markets like Austin which grew rapidly are just fine. Hell, New York City’s population is down ~2% since 2020. Real estate market? Just fine.
Moreover, prices for existing homes are still trending up, albeit moderately in a more normal fashion, as it should be. Again, 2020-2021 was crazy, prices grew ~50%. For March 20205, Home prices climbed a moderate 2.7% to $403,700, an all-time high for March and the 21st consecutive month of YoY price increases.
My Skeptical Take:
Here is what I want you to take away:
We should be skeptical of the negative GDP number. Q1 GDP grew somewhere 2%-3%. Crisis, likely averted. No recession. For now.
We should be skeptical of the President’s statements that we won’t replace Jerome Powell. The Fed could be politicized with a shadow nomination. The President won’t wait until May, 2026 to announce Powell’s replacement. So what we are really debating is when, or how early, Powell’s successor will be announced.
On housing, we should be skeptical of the activity numbers for March, up 6%. We are getting into the busy Spring season, but as of yet, there are not enough strong demand indicators. Real estate inventory is likely to continue normalizing higher, providing more/better choices for investors.
We should be skeptical of the doomers in the press and online “experts” saying home prices will fall. The Chief Economist for RedFin, Daryl Fairweather, thinks so.
Prices should continue to rise (but not always, keep reading). Yes, price data will be volatile from, 1) suppressed activity from tight Fed Policy (ie, continued high rates) and 2) in certain geographic areas with local dynamics at play (such as new apartment supply peaking now, but then falling off a cliff).
How have the last 30 years gone (ResiClub)? Up 300%.
But, then again, home prices could go down. After all, fear and loss aversion are powerful human emotions and become a self-fulfilling flywheel if market sentiment sours.…
…But for how long?
We should always be skeptical that this price trend, or any trend, will continue unbroken. But, in those times, it’s not a bear signal. It’s bullish, on trend. We don’t invest for the trade, we invest in a long-term thesis: Real estate remains a growing necessity. So if prices do decrease, that trend break will, in my humble opinion, be relatively short-lived to our investment timeline and present a full-on smash the giant green button buying opportunity. Think, 2008-2010. Remember, the real estate market didn't bottom until 2011. How do you think you would have handled it if you bought a property in 2008 or 2009, thinking it was a great investment? After all, you were buying when the market was fearful, like all the great investors, like Warren Buffett, say to do! But then, the market continued down. For another 3+ years.
Would you have held on or panic-sold?
The right decision, with the benefit of hindsight of course, would have been to hold. And I don’t know anyone upset that they bought in 2009. In fact, I did this. For my first investment property, I bought a 3-bed/2-bath townhome in Washington DC in, shall we say, an interesting C-class area in 2009, during a recession. And what we didn’t know at the time, it was the greatest economic downturn since the Great Depression.
And guess what? It was a home run.
You can never perfectly time the market, but you can stay vigilant for when the market brings you opportunity.
Until next time. Stay Curious. Stay Skeptical.
Herzliche Grüße,
-The Skeptical Investor
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